Charles Bukowski once wrote: The important thing is the obvious thing no-one is saying. What is the important thing in the Irish economy at the moment very few people are discussing?
Could it be the patent cliff? Ireland's growth in exports is going to be hammered when several important patents for particular pharmaceutical products lapse, allowing generic alternatives to enter the market, thus lowering the price.
Pharmaceuticals make up more than a quarter of Ireland's exports. So the box of blue pills will sell for perhaps 2 euros instead of twenty, and the value (and indeed also the volume) of exports will drop. This will eat into our economic growth statistics of gross national product and gross domestic product, as exports are the only element of our national accounts on the rise at the moment. Every other component of Ireland’s national output, from consumption to government expenditure to private investment, is in decline. Remember, without signs of robust growth, Ireland will find it difficult to exit the EU/IMF recovery programme and borrow from the private markets again.
But the patent cliff problem is pretty well known, especially within policy circles. So no, it's not that.
Could it be the Ireland has some of the weakest labour market activation policies in Europe? Our unemployment rate has been above 12 pc for 2 years, rising from around 5pc in 2007. Putting the problem in absolute terms, between 2007 and the beginning of 2011, total employment in Ireland fell by over 345,000, or around 16 pc. Labour market activation programmes such as retraining, job search assistance, and public sector job creation have been touted as a large part of the solution to the unemployment problem. However, programmes to get workers retrained and back in employment have not been anywhere near as effective as they could have been. Recent research from the ESRI has shown fairly conclusively that the likelihood of finding work actually drops the more training courses one takes.
But again, the unemployment statistics speak for themselves.
What about the banks and the possibility of another bailout? Again, no. Not because this isn't important, but because every Irish adult is focused on the bailout, the possibility of another bailout, the Fiscal Treaty, and so forth.
Mortgages and household debt then? Though there has been no decisive action in this crucial area, the public are well aware of the extent of the problem--more than 9% of mortgages are in arrears or have been restructured--and at some point the personal insolvency legislation, combined with a set of policy tools like social rehousing and other measures will begin--however inefficiently--to tackle this problem in the coming years. The societal consequences of a large-scale debt write-off or write-down for thousands of households can’t be understated, but because these consequences are unforeseen, they can’t really be stated precisely either. Ireland’s sociologists will have their work cut out for them.
What about the quality of housing stock? Could there be a series of Priory Hall episodes about to take place, where unsuspecting homeowners are forced to leave their homes and passed around like a bureaucratic hot potato from agency to agency? I think there can be no doubt other shoddy buildings out there are not up to the building and safety codes in the State. We may never know the extent of the problem. The developers who put these buildings together are all bust; the government cannot afford costly rebuilding. The residents cannot be compensated fully. So an injustice will exist where those responsible for signing off on the buildings’ quality are allowed to walk away, while those who bought at the height of the boom are left behind by the System.
I think the Priory Hall episode is symptomatic of a larger problem in Ireland. We have a problem with corruption, and with the insistence on maintaining the status quo by those who profit from an institutional inertia. When a problem arises, it is nobody’s problem, except perhaps the government’s. No one is held accountable for any solution. A new book by Trinity College Lecturer Elaine Byrne, Political Corruption in Ireland 1922-2010, A Crooked Harp, spells out the problem of corruption—or perhaps we should call it ‘influence’—from the beginning of the State to the present day.
The essential problem Dr. Byrne identifies is that influence is an unregulated market with large societal consequences when too much influence succeeds in privileging the interests of the few over the interests of the many. But we have learned to live with ‘influence’. We may do better to recognize it in the future, but for now the striking finding in a recent Edelman Trust survey, that 70 per cent of people surveyed said they "do not trust [the government] at all to tell the truth" says it all.
However I think the important, and unsaid, problem in Ireland is that we won’t be able to get out of the problems we have created for ourselves. Even with austerity measures and hair-shirt budgets, with wage cuts, high levels of youth and long term unemployment, with depressed domestic demand, with outward migration and the concomitant loss of sovereignty our membership of the EU implies, the worry is that we could do everything we are told and still end up needing more bailouts, more sacrifices, and more pain. Irish people, I think, see that we really aren't the masters of our own destiny: that events in another country anther state could spell the end for us regardless of the choices we make. Were Spain or Italy to default, if the bond markets do not recover sufficiently from their current turmoil, and if the European authorities do not recognize the need for growth in the periphery to offset unsustainable increases in private debt that have been made public, we are sunk.
And I think we all know that. And I think we don’t say it enough.
Hi Stephen,
Could the important thing that no-one is saying be that modern money is created by banks with a corresponding debt? Or that banks delete money as loan repayments are processed?
Or that this is a very unique recession since mortgages finally take two concurrent careers to repay and can't increase in duration?
If you're interested I'll attach a graph of total deposits with, and total debts to, the Irish banking sector which demonstrates these points.
Paul Ferguson
Sensible Money
Hi Paul, I do plan a post on the history of Money in Ireland, the debt free idea may sit well in there.
Thanks Stephen,
Looking forward to it.